World Bank says India's GDP to grow at 7.3% in 2018-19

The World Bank projections look good even in comparison with China. While our neighbour grew at 6.8% in 2017, just a tad better than India, its projected growth rate is decelerating: 6.4% in 2018 and 6.3% in the next two years.

First the good news: The 2018 Global Economics Prospect (GEP) released by the World Bank today projects India's GDP growth to pick up to 7.3% in 2018-19 and to 7.5% for the next two years. In comparison, the figure for the second quarter of the current financial year (July-September 2017) was 6.3%, up from the three-year low of 5.7% in the first quarter. The report pegs overall economic growth for 2017 at 6.7%, despite initial setbacks from demonetisation and introduction of the Goods and Services Tax (GST).

"In all likelihood, India is going to register higher growth rate than other major emerging market economies in the next decade. So, I wouldn't focus on the short-term numbers. I would look at the big picture for India and big picture is telling us that it has enormous potential," Ayhan Kose, director, Development Prospects Group, World Bank, and the author of the report told PTI.

According to the GEP, India's future is looking good on several fronts. Strong private consumption and services are expected to continue to support economic activity. Private investment is expected to revive as the corporate sector adjusts to the GST, which over the medium term is expected to benefit economic activity and fiscal sustainability by reducing the cost of complying with multiple state tax systems, drawing informal activity into the formal sector, and expanding the tax base.

Moreover, the recent recapitalization package for public sector banks announced by the government is expected to help resolve banking sector balance sheets, support credit to the private sector, and lift investment, while the global trade recovery is expected to lift exports.

The World Bank projections look good even in comparison with China. While our neighbour grew at 6.8% in 2017, just a tad better than India, its projected growth rate is decelerating: 6.4% in 2018 and 6.3% in the next two years.

To materialise its potential, Kose said that India needs to take steps to boost investment prospects. "On the productivity side, India has enormous potential with respect to secondary education completion rate. All in all, improved labour market reforms, education and health reforms as well as relaxing investment bottleneck will help improve India's prospects," he added.

A major ace up India's sleeve, as pointed out by the World Bank official, is the country's favourable demographic profile, rarely seen in other economies. Apart from reducing youth unemployment, "improving female labour force participation rate", which remains low relative to other emerging market economies, "will make a huge difference".

"If these are done, India can reach its potential easily. In fact, we expect India to do better than its potential in 2018 and move forward," said Kose, adding that India's growth potential would be around 7% for the next decade.

Now for the bad news: Of the leading developing economies, only India performed less strongly than the World Bank anticipated in June 2017, with estimated growth of 6.7% in 2017 and the projected 7.3% in 2018 representing downgrades of 0.5% and 0.2% respectively. According to the report, "the slight downward revision to India's still-fast pace of expansion" comes due to "a softer-than-envisioned recovery in investment and lingering effects of recent policy changes". In fact, the "temporary disruptions associated with the adjustment in India to the new GST" was cited to be one of the main factors causing regional growth to decelerate compared to the June forecasts.

Kose, however, gives a thumbs up to the current government saying "India has an ambitious government undertaking comprehensive reforms...And we have all the reasons to expect this government to continue economic policies to create friendly environment for businesses and push its growth potential up." According to him, these reforms will, of course, bring certain policy uncertainty, "but when you look at India's growth potential and our numbers down the road 2019 and 2020, it is going to be the fastest growing large emerging market".